U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-23332
ELECTRONIC FAB TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
Colorado 84-0854616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7251 West 4th Street
Greeley, Colorado 80634-9763
(Address of principal executive offices)
(970) 353-3100
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class of Common Stock Outstanding at May 1, 1996
Common Stock, par value $0.01 3,940,860 shares
ELECTRONIC FAB TECHNOLOGY CORP.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets -- March 31, 3
1996 and December 31, 1995
Condensed Statements of Income -- Three 4
months ended March 31, 1996 and 1995
Condensed Statements of Cash Flows -- 5
Three months ended March 31, 1996 and
1995
Notes to Condensed Financial Statements 6
-- March 31, 1996
Item 2. Management's Discussion and Analysis of 7
Results of Operations and Financial Condition
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<TABLE>
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ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED BALANCE SHEETS
(unaudited)
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $46,075 $481,086
Accounts receivable, net of allowances of $20,000 4,841,754 4,982,450
Inventories (note 2) 11,586,547 9,859,414
Income taxes receivable 177,847 74,922
Prepaid expenses and other current assets 356,898 528,466
Total current assets 17,009,121 15,926,338
Property, plant and equipment, at cost 13,374,123 12,839,976
Less accumulated depreciation 4,185,921 3,949,163
Net property, plant and equipment 9,188,202 8,890,813
Other assets 169,804 167,148
$26,367,127 $24,984,299
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable $2,250,000 $ -
Current portion of long-term debt 170,000 170,000
Accounts payable 4,434,198 4,986,757
Accrued expenses and other liabilities 871,770 901,738
Total current liabilities 7,725,968 6,058,495
Long-term debt, net of current portion 2,975,000 3,060,000
Deferred income taxes 344,568 356,606
Shareholders' equity
Preferred stock, $.01 par value. Authorized
5,000,000 shares; none issued or outstanding - -
Common stock, $.01 par value. Authorized 45,000,000
shares; issued 3,940,860 shares 39,409 39,409
Additional paid-in capital 10,181,204 10,181,204
Retained earnings 5,100,978 5,288,585
Total shareholders' equity 15,321,591 15,509,198
$26,367,127 $24,984,299
<FN>
<F1>
See notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three months ended March 31,
1996 1995
<CAPTION>
<S> <C> <C>
Net sales $15,002,959 $12,118,557
Cost of goods sold 14,403,137 11,172,542
Gross profit 599,822 946,015
Selling, general, and administrative
expense 811,620 724,509
Operating income (loss) (211,798) 221,506
Other income (expense):
Interest expense (95,526) (84,570)
Other, net (7,144) 52,823
(102,670) (31,747)
Income (loss) before income taxes (314,468) 189,759
Income tax expense (benefit) (126,861) 64,979
Net income (loss) ($187,607) $124,780
Income (loss) per common and common
equivalent share ($0.05) $0.03
Weighted average shares outstanding 3,958,335 3,947,067
<FN>
<F1>
See notes to condensed financial statements.
</FN>
</TABLE>
TABLE
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ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three months ended March 31,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($187,607) $124,780
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 324,465 404,620
Deferred income taxes (23,936) (2,421)
(Gain) loss on sale of assets 14,441 -
Changes in operating assets and liabilities:
Accounts receivable 140,696 (656,040)
Inventories (1,727,133) 219,966
Prepaid expenses and other current assets 159,671 (58,970)
Accounts payable and accrued expenses (582,527) (188,305)
Income taxes (102,925) 2,745
Other assets (2,656) 375
Net cash (used in) operating activities (1,987,511) (153,250)
Cash flows from investing activities
Proceeds from sale of equipment 95,600 -
Purchase of property, plant and equipment (708,100) (1,050,071)
Net cash (used in) investing activities (612,500) (1,050,071)
Cash flows from financing activities
Common stock issued, net - 9,490
Principal payments on long-term debt (85,000) (85,000)
Borrowings (payments) on notes payable, net 2,250,000 1,160,000
Net cash provided by financing activities 2,165,000 1,084,490
Decrease in cash and
cash equivalents (435,011) (118,831)
Cash and cash equivalents:
Beginning of period 481,086 153,483
End of period $46,075 $34,652
<FN>
<F1>
See notes to condensed financial statements.
</FN)
</TABLE>
<PAGE>
ELECTRONIC FAB TECHNOLOGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ending March 31,1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. The unaudited condensed
financial statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's annual report and
Form 10-K for the year ended December 31, 1995.
Note 2--Inventories
The components of inventory consist of the following:
March 31, December 31,
1996 1995
Purchased parts
and completed
subassemblies $9,182,597 $8,051,648
Work-in-process 2,403,950 1,807,766
$11,586,547 $9,859,414
Note 3--Supplemental Disclosure of Cash Flow Information
Three months ended
March 31,
1996 1995
Cash paid during the period for:
Interest $96,797 $74,965
Income taxes $ -0- $ -0-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
Net sales. Net sales are net of discounts and are recognized upon
shipment to a customer. The Company's net sales increased by 23.8% to
$15,002,959 for the first quarter of fiscal 1996, from $12,118,557 during the
same period in fiscal 1995. The increase in net sales is due to increased
shipments to new and existing customers consisting primarily of increased
material sales associated with turnkey manufacturing.
Gross profit. Gross profit equals net sales less cost of goods sold
(such as salaries, leasing costs, and depreciation charges related to
production operations); and non-direct, variable manufacturing costs (such as
supplies and employee benefits). In the first quarter of fiscal 1996, gross
profit decreased 36.6% to $599,822 compared to $946,015 for the same period in
1995. The gross profit margin for the first quarter of fiscal 1996 was 4.0%
compared to 7.8% for the same period of fiscal 1995. The primary reason for
the decline in gross profit is related to decreased efficiencies manifested in
increased costs related to the start-up of manufacturing of new assemblies and
other costs. Direct labor costs and related benefits increased approximately
$543,000 in the first quarter of 1996 compared to the first quarter of 1995,
an increase of 34.6%. Manufacturing supplies and expenses increased
approximately $134,400 in the first quarter of 1996 compared to first quarter
of 1995, an increase of 50.4%. The Company also experienced incremental costs
associated with its current reengineering project such as expenses related to
moving of surface mount lines, productions lines and various manufacturing
equipment and personnel costs associated with reorganization of business
processes. These costs were approximately $75,000 to $100,000 in the first
quarter of 1996.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses ("SGA expense") consist primarily of non-manufacturing
salaries, sales commissions, and other general expenses. SGA expense
increased by 12.0% or $87,111 to $811,620 in the first quarter of 1996,
compared with $724,509 a year earlier. The increase is due primarily to
increased variable selling costs associated with higher sales volume. As a
percentage of net sales SGA expenses decreased from 6.0% of net sales in the
first quarter of fiscal 1995 to 5.4% of net sales in fiscal 1996.
Operating income. Operating income for the first quarter of fiscal 1996
decreased 191.1% to a loss of $211,798 from income of $221,506 in the first
quarter of fiscal 1995. Operating income as a percentage of net sales
decreased to -1.4% in the first quarter of fiscal 1996 from 1.8% in the same
period last year. The decrease in operating income was the result of factors
noted above.
Interest expense. Interest expense for the first quarter of 1996 was
$95,526 compared to $84,570 for the same period in fiscal 1995. The need to
fund the increase in inventory levels with operating debt was the primary
reason for the increase in interest expense.
<PAGE>
Income tax expense. The estimate of the Company's effective income tax
rate for the first quarter of fiscal 1996 and 1995 was 40.3% and 34.2%
respectively. This percentage fluctuates substantially because relatively
small dollar amounts tend to move the rate significantly as estimates change.
State tax credits generated from capital investment and job creation also
continue to effect state taxes because of the Company's location in a
state-designated "enterprise" zone.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1996 cash used in operations was
$1,987,511 compared to cash used in operations of $153,250 in the same period
last year. Cash used to fund inventory growth and a net loss from operations
were the key factors that created this use of cash.
As of March 31,1996, working capital totaled $9,283,153 compared to
$9,867,843 at December 31,1995. The decline is attributable primarily to the
purchase of fixed assets in the first quarter of 1996.
Accounts receivable increased 7.2% to $4,841,754 at March 31,1996 from
$4,514,563 at March 31,1995. A comparison of receivable turns (i.e.
annualized sales divided by current accounts receivable) for the first quarter
of fiscal 1996 and the first quarter of fiscal 1995 is 12.4 and 10.7 turns,
respectively.
Inventories increased 59.6% to $11,586,547 at March 31,1996 from
$7,259,408 at March 31,1995. A comparison of inventory turns (i.e. annualized
cost of sales divided by current inventory) for the first quarter of fiscal
1996 and 1995 shows a decrease to 5.0 from 6.2, respectively.
The Company used cash to purchase capital equipment totaling $708,100 in
the first quarter of 1996, compared with $1,050,071 in the same period last
year. Capital purchases in the first quarter of 1996 consist primarily of
test equipment and upgrades to the Company's management information systems.
The Company has budgeted capital expenditures for 1996 of approximately
$3,800,000. The Company is in the process of reengineering its business
processes and developing and purchasing new management information systems
which are projected to cost approximately $2,300,000 of which $380,000 was
spent in 1995 and another $140,000 was spent in the first quarter of 1996.
The new systems budget includes hardware, software and consulting fees. In
addition, the Company has another $1,500,000 budgeted for new manufacturing
and test equipment. These acquisitions will be funded out of existing debt
facilities.
At March 31, 1996, the Company had available a revolving line of credit
and a term loan aggregating $10,000,000 under which $2,250,000 was
outstanding. Interest on this credit facility accrues when drawn down at the
Bank One Prime rate plus .25% (9.0% at March 31,1996). The credit facility is
collateralized by substantially all of the Company's assets, other than real
estate. The loan agreements from the credit facilities contain restrictive
covenants relating to capital expenditures, borrowing and payment of
dividends. These credit facilities may be withdrawn/canceled at the bank's
option under certain conditions such as default or in the event the Company
experiences a material negative change in financial condition. The Company
also has a term loan that is secured by deeds of trust on both of the
Company's buildings and land. The term of the loan is seven years with a 20
year amortization. Principal payments are semi-annual with monthly payments of
interest. The loan rate floats at the Citibank prime rate plus 1% (9.25% at
March 31,1996) with a cap of 9.5%. The rate is adjusted annually on September
15th. The balance due on this loan was $3,145,000 at March 31,1996.
The Company may require additional capital to finance enhancements to, or
expansions of, its manufacturing capacity in accordance with its business
strategy. Management believes that the need for working capital will continue
to grow at a rate generally consistent with the growth of the Company's
operations. Although no assurance can be given that financing will be
available on terms acceptable to the Company, the Company may seek additional
funds, from time to time, through public or private debt or equity offerings,
bank borrowing, or leasing arrangements.
QUARTERLY RESULTS
Although management does not believe that the Company's business is
affected by seasonal factors, the Company's sales and earnings may vary from
quarter to quarter, depending primarily upon the timing of customer orders and
product mix. Therefore, the Company's operating results for any particular
quarter may not be indicative of the results for any future quarter or year.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) none
(b) The Company did not file any report on Form 8-K during the three months
ended March 31, 1996.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELECTRONIC FAB TECHNOLOGY CORP.
(Registrant)
Date: May 13, 1996 Gerald J. Reid
Gerald J. Reid
President and Chairman of the Board
Date: May 13, 1996 Stuart W. Fuhlendorf
Stuart W. Fuhlendorf
Treasurer and Chief Financial Officer
Date: May 13, 1996 Brent L. Hofmeister
Brent L. Hofmeister
Controller
